American workers are opening their first paychecks of the year and finding an unpleasant surprise: The government's take has gone up.
A temporary cut in Social Security withholding gave Americans hundreds of extra dollars to spend over the past two years. But Congress allowed that break to expire during the wrangling over the fiscal cliff, meaning that Social Security taxes have reverted to 6.2% of salary from the temporary 4.2%.
The noticeable lightening of paychecks as consumers remain tentative threatens to put a drag on economic growth. The effect for companies is that the hit is likely to cement a frugal attitude that led consumers to cut back on eating out and shift to less-expensive store brands.
The tax hit could affect companies such as consumer-goods makers, clothing retailers, department stores, food producers, grocery stores and restaurants. Many of these companies had better sales, profit growth and improved pricing trends going into the end of last year, and some could see renewed sales pressure as consumers, particularly in lower-income households, curtail spending. Some companies said it is too soon to estimate the potential impact of the tax break expiration on their sales and profits, but it nevertheless has been a nagging concern.Read the full story HERE.